Apache Energy just announced acquisition of a 51% interest in western Canada’s Kitimat liquefied natural gas project, to ship its proposed north-eastern BC shale gas production to Far East and world markets starting in 2014. In December, Exxon announced it was spending US$ 41 billion to buy shale gas-rich XTO Energy. These two transactions are just a part of an industry rush into unconventional gas production that’s mostly based on advances in three new technologies: horizontal drilling, multi-spaced high-pressure hydraulic fracturing and associated micro-seismic investigation.
Good idea or a bubble? Based on energy content equivalents, natural gas is a bargain right now. And its low price, abundance and clean-burning nature have made it a darling of the greenhouse gas options. To top that off, shale gas proponents have boldly said the US now has a hundred-year supply of the stuff right in their backyard—saying goodbye to energy security headaches.
But wait a minute. Two hurdles loom large.
Firstly, environmental. The US Environmental Protection Agency is keeping an eye on the dangers of high pressure hydraulic fracturing and chemicals used. On December 30 they responded to an environmental impact statement submitted by NY State to develop the Marcellus shale deposits there, which was to be used to process applications for horizontal drilling and multiple fracturing. EPA hesitated and asked for further analyses, citing potential health impacts under the Safe Drinking Water Act. “EPA has serious reservations about whether gas drilling in the New York City watershed is consistent with the vision of long term maintenance of a high-quality unfiltered water supply,” they stated. As citizen opposition to gas drilling grows, a harbinger of the entire country’s regulatory requirements, perhaps?
Secondly, because shale gas production is so new, long-term production statistics don’t exist—and these are the only way to confirm reserve amounts. There are already indications that decline rates are massively higher than conventional wells—in the 65% range the first year, 35 the second, 25 in the third and 10 to 20 thereafter. “These declines can be brutal,” said one leading gas production analyst.
So can shale gas be America’s energy savior? We need more time.